How to save money when your budget is tight

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Financial experts recommend having at least three to six months’ worth of expenses socked away in liquid savings for a rainy day. While this sounds good in theory, building a financial cushion can feel like an impossible task when you have hardly any money left at the end of the month.

Know that if you’re struggling you’re not alone—17% of adults are not able to pay their bills in full each month, and an additional 12% of adults would not be able to pay their bills if they had a $400 emergency pop up, according to the Federal Reserve. So far, a record 22 million Americans and counting have filed unemployment claims over the past several weeks because of the coronavirus.

Let’s be honest here—times are tough. If your budget is tight, we have some tips to help strengthen your savings.

Save first, live off the rest

People often save whatever is left after spending, according to Charles Ho, certified financial planner and owner of Legacy Builders Financial—but there’s usually nothing left to save. “Instead, I challenge people to save first and then spend whatever is left over,” Ho says.

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To do this, Ho recommends reworking your monthly budget. Decide on the dollar amount you’re capable of saving, and then automate biweekly or monthly transfers of that amount from your checking to savings so you’re not able to spend it. You may be surprised how little you can live off of when the money you earmark for savings is no longer sitting in your checking account.

If you haven’t been able to stick to a budget in the past, it doesn’t mean you’re bad with money. Some budgets work for some people and don’t work for others, Ho says. Experiment with budgeting methods until you find one that works for you. A spreadsheet is a simple way to log your income and expenses. Or you can try higher-tech budgeting systems like YNAB (formerly You Need a Budget), EveryDollar, or Mint to budget your income and track your spending.

Cut the fluff

To tighten your budget, think about your wants versus needs, especially now that experts predict we’re heading toward a recession. Removing some of the wants (i.e., non-necessities) can free up even more money for emergency savings.

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When working with clients, Ho uses Maslow’s hierarchy of needs to illustrate the difference between necessities and luxuries. “If we had a pyramid of different things that we need, the very bottom of the pyramid is our physical needs—food, water, shelter, clothing—anything above that are metaphysical needs … [such as] feeling like we belong or feeling like we’re part of a tribe,” Ho says.

The world has convinced us that we can meet our need to look good and be social by spending money. Finding free or lower-cost ways to fulfill these needs can lead to more savings in the bank. For instance, shop secondhand stores for designer outfits instead of splurging, or host after-work drinks at your house with a few inexpensive bottles of wine instead of heading to a restaurant or bar.

Now that much of the country is social distancing, you may be forced to cut back on discretionary spending anyway. After stay-at-home orders lift, you may have to make some tough choices about what pastimes, services, and products you’re willing to sacrifice for a bit longer to continue increasing the balance in your savings account.

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Be mindful at the grocery store

Food is a large portion of a household’s budget, accounting for Americans’ biggest monthly expenditure after housing and transportation, but there are other ways to cut down on the necessary expense.

Before you head to the grocery store, browse coupons and plan your meals. Stick to your grocery list, resisting the urge to throw any other items you come across in your cart. In the produce section, shop for in-season items and avoid pre-cut fruits and veggies. Something as simple as grating your own cheese saves you a few dollars. And if you’re not loyal to a particular brand, scan the shelves for a less expensive canned good.

Renegotiate where you can

Even recurring fixed expenses can be lowered for savings if you’re willing to do a bit of negotiation. Call your service providers to see if you can secure a cheaper package, or shop for cable and telephone services with competitors to see if you can score a better deal. You could even consider cutting the cord entirely thanks to more affordable options like Hulu, Sling, and Disney+.

As for insurance, Ho recommends double-checking that you’re not overinsured, particularly for car insurance. The coverage an agent sells you may not be what you need. If you don't get behind the wheel often, raising your deductible is one way to lower your monthly payment. This does mean you will pay more out-of-pocket if you get into an accident, so you should weigh both the pros and cons.

Check your account before changing your policy. Some car insurance companies, such as Allstate, Geico, and Liberty Mutual, are lowering premiums for customers over the next few months because fewer people are driving due to the coronavirus pandemic.

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Restructure your debt, if possible

If your credit score has improved recently, you may be able to qualify for a lower interest rate and lower monthly payment on your mortgage or car loan. Transferring your credit card debt to a balance transfer card that’s offering 0% APR for 15 to 21 months can help you pay off debt faster since more of your payment will go toward the principal. With credit cards out of the way, you may have more cash to stash away in savings.

If you’re a federal student loan borrower struggling to save, you can explore income-driven repayment plans as a way to lower your monthly payments. Federal loans are automatically going into administrative forbearance from March 13, 2020, to Sept. 30, 2020, due to COVID-19. Interest is also waived on Direct Loans, FFEL Program loans, and Federal Perkins Loans during this period. The money you save from loan payments over the next few months could go to topping up your emergency fund as well.

Make your money work for you—in the right place

Don’t put your savings into an investment account—it’s too risky. “The most important thing with an emergency fund is liquidity—being able to access those funds almost immediately, within one day, if not one hour, without losing principal,” Ho says.

Traditional savings accounts at brick-and-mortar banks usually offer interest rates that are a fraction of a percentage point. However, online-only savings accounts at banks like HSBC Direct and Marcus By Goldman Sachs offer rates above 1%, and you can easily transfer money into and out of the account. Make sure the account you open is FDIC-insured, which means up to $250,000 of your money is covered if the bank fails.

Remember that small change matters

You may not be able to stockpile thousands or even hundreds of dollars overnight, but progress is progress. Making lifestyle changes and consistently squirreling away money each month can help you accumulate a sizable amount of savings over time.

The $20 you spend on to-go meals every few days may not seem like a budget buster. But a $20 restaurant tab three times per week is $240 in missed savings per month. Cut it out of your budget for 12 months, and you could be almost $3,000 richer next year. By reducing spending like this in multiple budget categories, you can be on your way to saving several months’ worth of expenses for a rainy day.

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